Sunday, October 25, 2009

Health insurance mandates-An economist's argument that it is a bad idea

Much of the argument involving the health care deconstruction-reconstruction bills (misleadingly labeled as reform) that is reported and emphasized is the issue of the public option. A more fundamental issue, in my opinion, is found in the personal and employer mandates which seem to be slipping by with much less comment and discussion and concern than is warranted by the degree to which government will increase its control of every one's lives.Further,as has been so eloquently described and documented by Dr. Robert Higgs, once a government policy or program is put into place it almost never goes away or even pulls back a little bit.Public option or not the mandate (s) is/are a major government takeover of health care and a serious abrogation of individual freedom.

Tyler Cowen, a professor of economics at George Mason University, offers this detailed and cogent argument against the mandate from an economic point of view.Thomas Sowell talks about economic thinking as involving thinking "past stage one" and analyzing things not in terms of the hoped far results but in terms of the incentives and constraints that a given policy is likely to bring about. Cowen looks at the incentives that mandates and subsidies involve.

He points out that the mandate will result in lower wages, discusses "implicit marginal tax rate increase" and who will be hurt by that,the likelihood of "mandate creep", and the likelihood of continuing increasing cost of health care which will be exacerbated by the mandate. The issue of implicit marginal tax is discussed in detail here by another economist,Greg Mankiw from Harvard.

Cowen closes with these remarks:

We’re often told that America should copy the health care institutions of Western Europe. Yet we’re failing to copy the single most important lesson from those systems — namely, to put cost control first. Instead, we’re putting our foot on the gas pedal and ratcheting up the fiscal pressures on the system, in the hope that someday, somehow, it will all work out.

As it stands, we’re on the verge of enacting a policy that is due to explode, penalizing many of the very people that it was ostensibly designed to help.

The two economists speak of damage to the very groups the bills purport to help and collateral damage for most everyone else. I wonder how much effort has been made by the medical organizations (AMA, ACP and others)that seem to support much of what the current (five) bills contain to think past "stage one" and consider what incentives will be put into play under the rubric of reform.

Madison had it right when he said this over two hundred years ago:

"the old trick of turning every contingency into a resource for accumulating force in government." The massive increase in central government power, and control that these reform bills will bring about will happen with or without a public option.